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US Self-Storage Rental Rates Decline During Summer, SpareFoot Reports

Oct 22, 2018

Self-storage rental rates across the United States are showing signs of leveling or declining, particularly in markets that have experienced surges in facility development. Though pockets of growth have emerged in some markets this summer, they’re mostly in areas where self-storage supply has remained stable, according to a report from “SpareFoot Storage Beat,” an industry blog.

The slowdown contrasts with several years of double-digit rent growth following the Great Recession. “The broad picture is that we’re going to get back to our normalized rent growth of between 6 and 8 percent, and we’re going to have outliers on either side of that,” said Adam Schlosser, senior director of the National Self-Storage Group for Marcus & Millichap, a commercial-property investment firm.

U.S. rental rates for traditional 10-by-10 units fell 4.1 percent year over year in August, while climate-controlled rates dipped 2.8 percent during the same period, according to a September report issued through the Yardi Matrix self-storage data-services platform operated by Yardi Systems Inc.

At the same time, rates in Las Vegas, parts of the Midwest and Southern California’s Inland Empire grew between 3 percent and 10 percent, but those markets tended to be the most stable among the 31 markets in Yardi’s report. For example, the Inland Empire had the least new supply in the development pipeline as a percentage of existing inventory (3.9 percent). Areas of the Midwest like Cincinnati, Cleveland and Indianapolis also have not been hit with heavy development activity, while maintaining comparatively low acquisition and development costs, the source reported.

“If you think about it like a stock portfolio, you’re almost safer betting on Detroit today than you are, say, San Francisco, because at this point in the business cycle, there’s likely to be more volatility in real estate prices in San Francisco than there will be in Detroit,” said David Dent, senior real estate market analyst at Yardi.

Though increased development has crimped rate growth, other economic factors appear favorable toward increases in self-storage consumer demand. These include growth in apartment rentals and jobs, and strong retail sales in storage-related consumer goods categories such as furniture and home furnishings, according to Alex Pettee, president and portfolio manager for Hoya Capital Real Estate LLC, a Stamford, Conn.-based real estate investment adviser and manager.

While those factors may aid rental-rate growth in some markets, expected increases going forward will likely be less than 10 percent, according to Schlosser. “We have to understand that we cannot continue to push rates at 10 percent a year; the consumer will just be priced out of the market,” he said.

Schlosser believes downward pressure on rental rates will most likely be sustained for two to three years, “but the long-term outlook for the industry is as strong as it’s ever been,” he told the source.